Artificial intelligence (AI) is a game-changing technology, but it will take many years, maybe decades, to change the world. That means there is still plenty of time to position your portfolio to capitalize on AI and reap the rewards of this new technology and its long-term impact.
We know that AI chips are powering these innovations; the blue chip AI stocks of the future could depend on this need for AI chips and which companies come out on top. Here are a few AI chip stocks you can buy today and confidently hold for decades.
1. The winner of the AI chip battle
AI chips are the building blocks of the technology, so it’s hard to mention any long-term stock list without leading off with Nvidia (NASDAQ: NVDA). The company has between 80% and 90% of the AI chip market today.
Such a head start is a moat in its own right because competitors now have to convince companies that are building AI architecture to switch to their chips.
The long-term opportunity for Nvidia is based on how big the AI chip market could still get. Studies see a surge in data-center demand over the coming years, which could stretch the market to as high as $400 billion over the next several years — multiples larger than where it stands today.
What will that chip market look like in 2030, 2040, or 2050? Nobody knows just how powerful AI can become, but we do know that more-powerful AI requires better chips, and nobody has the market cornered like Nvidia when talking about the cutting edge.
It’s a $2 trillion company, and sustained AI demand could keep cash flow strong enough to fund years of aggressive share repurchases and dividends that fill shareholder’s pockets. It’s hard not to like Nvidia, even if its multibagger days are over.
2. The runner-up chip company with upside
It’s hard to imagine one company completely running away with such a large addressable market. Other companies can find a seat at the table, too.
My pick for one of the other competitors is Advanced Micro Devices (NASDAQ: AMD). AMD has proved its ability to penetrate markets by establishing CPU footholds in personal computers and data centers against incumbent Intel.
There’s already some evidence that AMD also has found success in AI. The company recently unveiled a new generation of AI chips, which CEO Lisa Su touted as technologically superior to Nvidia’s popular H100 chipset.
Technology keeps moving the goalposts, but AMD was able to tell the market that it has received interest from major AI players Microsoft and Meta Platforms. With data center revenue reaching “just” $2.3 billion in the first quarter, there’s a lot of room for expansion, especially if the AI chip market grows to be worth hundreds of billions of dollars.
AMD is a much smaller company with a market cap of $250 billion, a fraction of Nvidia’s size. And it might only get a small part of the AI chip market compared to Nvidia. However, that doesn’t mean it can’t generate stellar investment returns in its own right. Count AMD as a sneaky growth candidate for the decades ahead.
3. Who will build these chips?
Don’t assume that all these chip companies build their products — they don’t. Instead, they use companies called fabricators to make the chips for them.
Taiwan Semiconductor (NYSE: TSM) is the world’s largest chip fabricator. According to Statista, TSMC, as it’s also known, builds approximately 61% of the world’s semiconductors. That means it will have the most capacity and advanced tools to build the cutting-edge chips needed to power AI’s best and brightest applications.
Buying stock in TSMC means you don’t need to care whose chips reign supreme as long as it’s building them. In investing slang, that’s called a pick-and-shovel investment. It could be the smart way to play an AI war that could continue for years.
This company has some risks, primarily geopolitical concerns about China invading the country. That could mean the stock never trades at a valuation reflecting TSMC’s growth and fundamentals.
But if you have the stomach for such risks, finding another company as essential to AI as Taiwan Semiconductor is will be hard. This could be a multidecade winner if peace is sustained in Asia.
Should you invest $1,000 in Nvidia right now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
3 Artificial Intelligence Stocks to Buy Now and Hold for Decades was originally published by The Motley Fool